The Investment World

Make an educated leap

Investing must be understood as having risks, as unless you are investing in government bonds, there can no absolute guarantee of any return or capital growth, and even that statement must be tempered by the concerns over the bonds of some European Union countries.

When an investment is made the investor will be seeking one of three objectives:

  • An income from the investment.
  • Growth on the capital investment.
  • A combination of both income and capital growth.

Whichever of the preceding is the objective, the risk will need to be minimised whilst striving to achieve the required growth.

 

What to look for when investing.

When investing there are a number of issues, which need to be considered amongst those, being:

  • What return on my investment do I wish to see? Is it the minimum that I can realize? What is the historical record of the investment?
  • How important is capital growth? What is the record of capital growth of the investment, or is the growth speculative as in the AIM market?
  • As investing outside of banks and governments is a greater risk, can I afford to lose part or all of my investment? How should I look at my investment portfolio to spread the risks but maximise the returns on both income and capital growth?
  • Do I wish to ensure that I am investing in ethical or environmentally sound companies and, if so, will I possibly forgo a percentage of my planned income or growth to maintain my standards?
  • What is the industry or service that I am investing in and what is the track record of that industry and the perceived future? Banks are an example of shares, which following the financial crisis fell sharply, but as profits are recovering are now rebuilding their share price.
  • When investing it is necessary to consider the length of the desired investment. Some shares will be predicted to have a good growth plan over a 5-year period. Can you afford to invest for that period? One should look carefully at the Annual Report and the Investment Analysts’ reports to be able to assess the strength of shares, bonds and debentures.
  • When looking at investments always consider that you may need to realize the investment earlier than you intend, so what will the costs be on early surrender?

 

These are prime areas of concern that should be considered when building an investment portfolio, but are not all the areas of concern as each area has its own individualities that should be factored into your decision-making.

 

What to avoid when investing.

  • As previously indicated an imbalanced portfolio will create issues. A good portfolio will allow for capital growth, income, various periods of investments and also elements of defined risk. Placing all investments in say shares is unwise, as if the market collapses then a vast percentage of the capital value will be lost, thus this should be balanced by investments in deposit accounts and government backed bonds.
  • If you cannot afford to risk your investment then do not invest in shares.
  • Do not invest in high capital growth shares if you wish to receive high income.
  • Be aware of investments that have high release costs.
  • If the shares are in unfamiliar companies such as those quoted on the AIM market then seek professional advice, as these shares will have no income but be based on future potential. This may be too high a risk if you cannot include that into a balanced portfolio.

 

Tips and Hints

Investing is not as some people would describe it a “minefield”, but it does require a studious approach, and a solid understanding of the type of investments you may make. In this brief paper there is not room to discuss specifically the more “exotic” investments, so the tips and hints are focused on the more standard investment, but with all investments the most important tip is that “the greater the claim made in respect of the investment” the higher the perceived risk and the more careful you should be. Professional advisors are the experts in investments and will be regulated by their independent bodies as well as the FSA and Stock Exchange. If you receive advice from an unregulated person there will be no comeback. 

As has been already indicated it is essential to have a balanced portfolio and the way to achieve this is by having cash deposits, bonds and shares. Cash deposits can be with banks or building societies or other regulated deposit taking institutions, and whilst at present, they generate limited income even for longer term deposits they do allow for ready access to funds, albeit that a small interest penalty maybe payable. This cash will allow you to have access to funds should you see an opportunity to acquire shares at a good price.

Government bonds will offer fixed interest over a fixed term and will always return capital. The one factor to be considered here is that although the interest may be attractive at the point of time of investing, the capital value will almost certainly depreciate over time. Unlike bank deposits the realization of the funds invested may be costly.

Shares are always seen as a standard investment medium and, by and large, are part of an investment portfolio. It is however important to ensure that you balance the shares. Investing in companies in the FTSE 100 will give you a solid base for income and capital growth and give a steady base. However it is wise to carefully watch the company and its market intentions, as takeovers and mergers can affect shares and generally on an upward basis. There will be an opportunity to sell or acquire but outside of the closed period when share trading is prohibited. Apart from shares in the FTSE there are other PLC’s that have a good history and sound prospects and these can be traced through the shares prices quoted online or in the FT or other papers. Careful observation will allow you to see the share movements and allow for an informed decision.

 

It is also salient to look at market sector movements. Examples of this are the oil and gas and the mining industry. These industries have experienced good growth over the last few years, although not without some falls, and this is an indication that if you follow investment by sector you will understand the flow of the investment and will be able to bull and bear (buy and sell) at optimum times.

The AIM (Alternative Investment Market) is a market under the control of the Stock Exchange and is for what generally are viewed as up and coming companies. These will for instance be companies who have a new innovation to develop, or be mining companies who have seen an opportunity to test a new area for a mineral, and are now moving forward into the future development but need to raise capital. The investment return will be almost certainly be capital only and will be over a period of 3 years or more, but will give a high rate of capital return when the project is realized.

There is also the opportunity to invest in gold, silver or other precious metals online. There are regulated brokers who will invest your money in the metal of your choice without you physically holding the metal. You are able to control your investment on a daily basis and you can buy and sell as little as a gram at a time. With the movement in gold on an almost daily basis this can form part of a balanced portfolio with very little risk as if the market falls rapidly you can sell immediately.

 

Using a professional.

Using a professional will cost you commission or a fixed monthly fee, but the benefits of the advice may well see your portfolio grow exponentially thus justifying the cost. The broker will understand the type of portfolio you seek to achieve and will be monitoring the markets and be able to advise you of any moves he feels are in your interest. Your use of a professional will be based on whether you are comfortable handling your own investments and whether you feel you can justify the costs whilst potentially better managing the risks.

 

Best time to invest.

It is difficult to determine the best times to invest as the risk factor that you are willing to bear will be a considerable factor. As for bank deposits and bonds there is no true “best time” as they are low risk. However where shares are concerned there needs to be an understanding of the “bull and bear” market. A Bull Market is one where the shares are selling on the increase and a Bear Market where the shares are selling on the fall. The best time to invest in either market will be a critical decision. If you buy on a Bull Market you may buy at the point that the market is still increasing and thus you can sell at the optimum price and then make a gain, but also you may buy at the peak and thus need to hold the shares until the price rises. The reverse logic applies to a Bear Market. When a market is moving significantly the risk increases. It is wise to keep reviewing the indices that are regularly issued to make your decisions.

 

All the preceding advice is supplied on a non-recourse basis and is intended for guidance only. If you are in doubt about any investment you should seek advice from a regulated professional.

 

 

 

 

Company : 1902 Media